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Judge Gives Preliminary Approval of Borrower-Defense Settlement

August 5, 2022

A federal judge said Thursday he will give preliminary approval to a settlement deal for a years-long lawsuit against the Education Department that would automatically cancel $6 billion in student debt owed by nearly 200,000 borrowers who say they were defrauded by their colleges. The judge also allowed four colleges listed in the case to intervene.

Judge William Alsup of California called the settlement a “grand slam” for borrowers who were former students of 153 colleges listed in the settlement that was proposed by the Education Department in June. The judge also said that he is tentatively planning to grant multiple motions to intervene filed by for-profit colleges Lincoln Education Services Corporation, American National University and nonprofit colleges Everglades College and the Chicago School of Professional Psychology.

The colleges that requested to intervene in the case argued that under the proposed settlement, they would not be given the opportunity to respond to borrower-defense claims, which could harm the colleges’ reputations. They were also concerned about the Education Department attempting to recoup the funds of the discharged loans from the colleges.

“We are pleased,” Jason Altmire, president of the Career Education Colleges and Universities, which represents for-profit colleges, said in a statement. “The parties’ proposed settlement has unfairly impugned the reputations of more than 150 schools, all without the basic procedural fairness to which these schools are entitled under the department’s own regulations.”

The federal government clarified in a hearing on the settlement Thursday that an approval of the settlement would not require the colleges to pay the discharged loans or would be a determination of misconduct by the colleges.

The department responded to the motion to intervene last Wednesday, and Education Secretary Miguel Cardona said that he has “considerable discretion” to automatically forgive the debts of the borrowers involved in the case.

The lawsuit began in 2019 when a group of borrowers sued the Education Department, then controlled by former education secretary Betsy DeVos, after the administration refused to review borrower-defense claims for over a year.

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Meghan Brink

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